8

Nuance and Samsung Acquisition Talks Leave Apple in the Cold

Today, news broke that Nuance Communications (NASDAQ: NUAN) and Samsung (NASDAQOTH: SSNLF) have held acquisition talks. The news eventually led to Nuance being halted due to volatility, but the end result should have sent a chill through Cupertino, as an Samsung/Nuance merger could have huge ramifications on Apple's (NASDAQ: AAPL) iPhone.

Wasn't this supposed to be Apple? As it's been widely reported, Apple's Siri is powered by Nuance. A couple of years ago, Apple co-founder Steve Wozniak had the Internet on fire when he mentioned in passing that Apple had acquired the voice recognition company. Of course, those rumors later proved untrue but the rumor mill burned slowly for this deal. It briefly reignited when Carl Icahn disclosed his stake in Apple; the investing community is well-aware of his stake in Nuance and his son's appointment to the board of directors.

A Siri-less Apple? The big risk to Apple is losing Siri. Apple has been lukewarm about admitting it, but it is widely reported that Apple's "digital assistant" is powered by Nuance. When Siri was first introduced, it was considered a massive step forward in the phone's evolution. The company planned a huge ad blitz centered around the function and Apple went on to sell 4 million iPhone 4s units its first weekend – much more than the 1.7 million iPhone 4 units in its first weekend.

Moving forward to today, Apple is coming out of the doldrums on the back of a successful iPhone 5s launch, a great earnings report, and a recently completed stock split.

AAPL data by YCharts If this rumor ends up being true, and Siri is lost from the iPhone, this will be a huge blow to the iPhone line and a risk to Apple's fantastic year.

Foolish final thoughts It is important to understand that while this is a fast moving story, we shouldn't get too far ahead of ourselves with speculation. The risk to Apple is there, but don't put it past Cupertino's finest to secure Siri's functionality going forward – either by a deal with the acquirers or making an in-house solution. In the meantime, it will be interesting to see what happens to Nuance – and to watch Samsung's strategy going forward.

Bigger than Siri: Apple's next smart device (warning, it may shock you)Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

This is very misleading. Apple Siri's front end of voice recognition is powered by Siri; but Siri's AI backend is uniquely belong to Apple.

The voice recognition front end is essentially trying determine the words that is been spoken by the user. After these words are captured, it is up to the AI backend to accurately determine what the user is really trying to tell Siri to do. This is not an easy tasks as the spoken languages are usually very ambiguous in interpreting the actual meaning. The beauty of Apple's Siri is the fact that there are no specific commands the users must use in order to have Siri perform a specific task for them. So Siri has always been about the backend AI language interpretation and not the front-end voice recognition. This is the part that many people that are not technically inclined simply cannot grasp.

Thanks for the feedback. The point is Nuance has a (major) hand in Siri's functionality and Apple would have to replace it if its new owners decided to end the relationship. The question investors need to ask is "can it work without Nuance's technology"? And that answer, as of now, is no. I really think you're arguing of what the definition of is is.

Any competent technology business attorney would have anticipated the potential for this situation, and I'm sure that Apple did. Apple likely has rights to use Nuance's technology for a very long time if it wishes, and there are likely special provisions that kick in should Nuance be acquired, especially by an Apple competitor. In the short term (several years) I would therefore imagine no impact to Siri.

@jswolf has it correct. Something about this doesn't sound quite kosher, especially if the Icahns are involved. One would think that they would want to make sure that Apple has the "in" for such a situation. We are sure that more information about this may break shortly, or the rumour could just be an attempt to deflect attention from Apple and create controversy when Apple's momentum is back on an upswing.

@jswolf has it right - it's naive to think that Apple would leave something so obvious (a competitor buying a technology/company you depend on) to chance. There's guaranteed to be a multi-year contract in place.

@Makelvin's comment is actually quite germane here: there's quite a bit more to Siri than simply translating voice to text. Although Nuance is a leader in this area, I'm sure there are alternatives that could be used should Apple choose to sever their relationship with Nuance after a purchase by Samsung or other direct competitor. But, who knows - Apple might never have to do that. I'm sure Nuance's contractual obligations survive an acquisition.

Sending report...

After working at The Motley Fool, Jamal Carnette decided to try his hand at writing for a change. You can find him writing about technology, consumer goods, sports, and pontificating on any competitive advantage. His previous jobs include Mortgage Trainer, Financial Advisor, and Stockbroker. Jamal graduated from George Mason University with a bachelors of science in finance and is a CFA Level 3 Candidate. Follow me for tech trends, info on consumer brands, and sports banter.
Follow @TMFJCar